Hargreaves Lansdown welcomes 77,000 new clients through its doors as Royal Mail float helps profits jump

Investment supermarket Hargreaves Lansdown has recruited 77,000 new clients in the past six months, mainly due to a huge influx of Royal Mail sharebuyers ahead of the float in October.

The firm, which is in the middle of a massive price overhaul (see below), now has 584,000 customers on its books or nearly a third of the UK investment platform market.

Some 27,000 of its new investors joined just for the Royal Mail float, but Hargreaves expressed confidence they will stay and invest more widely in future - despite its embarrassing website crash on Royal Mail's first day of trading.

Float frenzy: Around 118,000 people or 18.5 per cent of the UK public who invested in Royal Mail shares did so through Hargreaves Lansdown

Hargreaves reported an 11 per cent jump in pre-tax profit to £104.1million in the second half of 2013, on revenues that rose 13 per cent to £158.4m - representing a sizeable profit margin for the firm.

The amount of assets Hargreaves looks after on behalf of clients has shot up 43 per cent to more than £43billion in the past year.

The firm shared the spoils of its success with shareholders - who include founders Peter Hargreaves and Stephen Lansdown - by hiking its half-year dividend by 11 per cent to 7p.

'During the six-month period most parts of the business have reported record figures. Client recruitment has surpassed all expectations,' said chief executive Ian Gorham.

'Markets have been helpful during the period with the FTSE All Share Index rising 9.7 per cent and throughout the world we have seen the majority of markets reporting worthwhile gains, continuing to encourage the equity investor with both capital growth and income well in excess of that achievable on cash deposits.'

Gorham said that around 118,000 people, approximately around 18.5 per cent of the UK public who invested in Royal Mail shares, did so through Hargreaves Lansdown.

'We saw days when up to 60,000 people tried to call Hargreaves Lansdown, and during the two key weeks of the Royal Mail floatation our website received 3.5million hits.'

Gorham thanked clients 'for their continued support and their patience during certain periods of the extraordinary Royal Mail floatation' - a nod to the IT glitch which saw some clients temporarily prevented from selling their shares.

Shares in Hargreaves were down 6 per cent or 90.5p at 1,406.5p in early trading.

Income shares watch: Hargreaves increased its half-year dividend by 11 per cent to 7p. The shares yield 2.04 per cent.

HARGREAVES LANSDOWN OVERHAULS PRICES

Hargreaves Lansdown is to introduce a new 0.45 per cent annual fee for the majority on its Vantage fund platform from March 1.

The charge - forced as part of an industry-wide pricing shake-up - will apply to holdings up to £250,000.

But alongside its new tiered charges - which fall to zero if you invest £2million-plus - Hargreaves will offer discounted annual fees of 0.54 per cent for some funds following negotiations with industry providers to drive down overall investing costs for clients.

Hargreaves had to revamp its pricing due to a looming ban on firms taking fund manager fees for selling new products - a system that currently allows Hargreaves and rivals to offer a cheap or even apparently 'free' service to investors, who then pay for it out of commission.

View from the City

'There is a clear investment case for Hargreaves, based around the long-term structural growth of the D2C [direct to consumer] platform market,' said Stuart Duncan of broker Peel Hunt.

'The sector has largely clarified its pricing structure over the last few weeks, and this will undoubtedly cause some disruption, but importantly is expected to have little impact on the overall profitability of Hargreaves’ business.'

Duncan retained a 'hold' recommendation on the stock

Alastair McCaig, market analyst at IG, said: 'Although Hargreaves Lansdown has seen a substantial increase in new accounts following the rush from investors to partake in the government's Royal Mail IPO [initial public offering], shares are off this morning.

'This is due to the firm continuing to see issues with the low interest rate and the reversal of a decision to increase client fees – an action likely to help client retention but ultimately hinder revenues in the short-term.'

Robin Savage, analyst at Canaccord Genuity, said: 'These results show very impressive momentum, which should help the second half of 2014.

'Forecasts for full year 2015 will be impacted by the change in Hargreaves Lansdown's revenue streams from 1 March this year.

'Management guidance on the impact of RDR2 rules [phase two of the Retail Distribution Review, the official name for the industry-wide pricing shake-up] suggests that headwinds created by the change in revenue model will be minimal even after allowing for changing consumer behaviour. We are sceptical and our forecasts are under review.

'Despite the management guidance, in our opinion, there remains considerable uncertainty over full year 2014 revenues.'

Stock watch: Hargreaves shares have soared over the past few years. despite the prospect of a pricing overhaul which will see it introduce a 0.45 per cent annual fee for the majority of customers on March 1